The word derogatory simply means negative, so a derogatory credit item is a negative item on your credit report. Derogatory items hurt your credit score and can impact your chances of getting approved for credit. There are two types of derogatory items: minor derogatories and major derogatories.
Minor Derogatory Items
A minor derogatory is a payment that was past due, either 30 days late or 60 days late. If, after the 30- or 6-day late, you brought the account current again, then it is considered a minor derogatory mark. However, if you are currently 30 to 60 days late, it is considered a major derogatory, which we will discuss below.
30 Days Past Due
Lenders cannot report your account as late to the credit bureaus until 30 days have elapsed since the missed due date, so if you pay your bill anywhere between one to 29 days after the due date, you should not see a derogatory item reflected on your credit report.
However, your lender may charge a late fee, so it’s still best to pay all of your bills on time. If you’ve never been late on the account before, you can contact your lender and see if they can waive the late fee for the accidental late payment. Many lenders are willing to do this for account holders that otherwise have good records.
In addition, if you have a promotional interest rate, you will most likely forfeit the promotional rate if you miss a payment, even if you were only a few days late.
Missed payment derogatory item
A 60-day late payment could result in an interest hike from your credit card issuer.
60 Days Past Due
If you miss your due date twice in a row and become 60 days late, the situation becomes more serious. At this point, the credit card issuer can hit you with a penalty APR of up to 29.99%.
Major Derogatory Items
A court judgment against you is a major derogatory.
A major derogatory credit item is typically defined as an account that is 90 days past due or more. If you have a major derogatory on your credit report, that is a huge red flag to lenders, and it may hinder you from being able to qualify for credit.
Examples of major derogatory credit items include:
Charge-offs – This is when a creditor writes off your account as a loss because you are so delinquent on the debt that they assume that the debt is unlikely to be paid. This typically happens after six months have passed without payment.
Collections – After your account has been charged off by the lender, they may try to regain a portion of their losses by selling the account at a discount to a debt collector, who then becomes the owner of the debt and will try to collect the funds from you.
Court judgments – A judgment is when a lender or debt collector sues you over an unpaid debt and the court orders you to repay it. A court judgment gives the lender or debt collector more powerful options to collect the money you owe them, such as garnishing your wages or putting a lien on your home.
Foreclosures – This happens when you become so delinquent on your home loan that the bank takes possession of the home so that they can try to recover the balance of the loan by selling the property.
Settlements and short sales – A settlement is an agreement between you and your lender that you will pay back part of the debt you owe them. The lender will then stop trying to collect more money from you after you have paid the settlement amount, but since you did not pay the full amount you owed, it is a derogatory item. A short sale is considered to be a type of settlement since the lender is agreeing to sell the property for less than the mortgage balance you owe.Bankruptcy is the most serious derogatory credit item.
Bankruptcy is the most serious derogatory credit item.
Repossessions – This is when the lender takes back possession of something such as your car or your house because you defaulted on the payments.
Public records – Public records such as delinquent taxes, liens, unpaid alimony, and unpaid child support, are derogatory items that can be severely damaging to your credit, especially if there is still a balance owed.
Bankruptcy – Filing bankruptcy means you are asking to be legally released from paying back some or all of your debts. Because of this, and because it affects several credit accounts, not just one, it is the most damaging derogatory item. It will almost certainly devastate your credit score and reduce your chances of getting approved for credit for a significant amount of time, although it is possible to recover from bankruptcy eventually.
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